Trading Gold Ahead Of Fed Meeting In Jackson Hole

Gold is having a phenomenal year thus far, up 24% year to date. There is an event this week that threatens to possibly take away a majority of the gains. That is that the Fed Chair Janet Yellen will be discussing the state of the economy, and may also even give hints about interest rates. With gold performing well this year, Wednesday saw some profit taking. This is a smart move considering that a lot of gains in gold could theoretically be erased if the Fed hints about an upcoming rate hike. The uncertainty in gold caused a lot of miners to fall during the trading day.

Fed Meeting

The Fed Chair Janet Yellen is expected to provide statements to the markets about the state of the economy. The Fed speech will possibly give an indication on what the Fed plans to do with respect to interest rate hikes. In other words, if it will hike rates or leave them alone. Yellen will speak at Jackson Hole, Wyoming on Friday. This will be a presentation to the public about economic affairs. It is a key event to watch, because the following month is the U.S. Central Bank’s policy meeting. The meeting set to take place in September will guide the market. In the meantime, gold traders will have to make due with hints stemming from Janet Yellen about rate hikes. Gold is already experiencing some volatility this week because of the Jackson Hole speech. Gold traded below its 50-day moving average on Wednesday, heading below $1,333.70. Investors should expect additional pressure on gold heading toward the speech on Friday. There is a fear that Janet Yellen may hint at hiking interest rates come September. Of course, such a goal may not be attainable pending other global outcomes. For instance, the ECB continues to keep lower rates, and has their monetary easing policy in place. With global markets still strained, it might make the Fed think twice about raising interest rates. For now, the market seems to air on the side of caution. This is the reason why gold has been trading lower heading into Friday. Traders should look to use put options heading into Janet Yellen’s speech. It may be wise to exit the trade before Yellen’s speech begins, because it will be a binary event. In addition, another thing traders can do to protect themselves is by having a mix of both call and put options in place to minimize risk. Gold had hit its one-month low on Wednesday, therefore, it is already in a bearish trading pattern. Well, hints from the Fed of hiking rates could potentially cause gold to trade even lower.

Dollar Higher

With Janet Yellen’s speech coming on Friday, investors drove the dollar higher. With the U.S. dollar staying firm throughout the session, it caused gold to fall. Just how strong was the dollar during the trading day? The dollar was so strong that it traded higher against both the yen and euro. The USD/JPY pair closed at 100.46 on Wednesday. This compares to the prior day, Tuesday, where the pair finished at 100.25. Simply put, this indicates that one dollar can purchase more yen. This means that the dollar was stronger against yen for the day. The same can be said about the GBP/USD pair, which traded $1.3231 on Wednesday. Again, higher from the prior day where the pair traded at $1.3193. This yet again points to a stronger dollar. The main event to see where gold will head next in the following week will be Janet Yellen’s speech. If she gives a hint at hiking rates, then gold will suffer additional losses. On the flip side, if Yellen indicates being lax on rates then gold may be able to trade higher. It could possibly trade back above its 50-day moving average.